The euro area economy contracted 15% in the first half of the year. Rapid and powerful economic policy measures have mitigated the damage caused by the pandemic, but there is still substantial uncertainty and recovery will take time.

The corona pandemic has seriously weakened the euro area economy and the outlook remains uncertain. Recovery will be affected by e.g. how successful the balance between the virus and the economy turns out to be, and how quickly confidence improves.

The alternative scenario attached to the forecast for the Finnish economy analyses what implications a delay in the recovery of the global economy would have for the Finnish economy.

There was a shift in the global economic cycle towards slower growth during the first half of 2018. The trade war and Brexit increase the risk of recession.

Global growth has slowed substantially during the course of the current year. One cause of this has been the trade war between the United States and China. Brexit, too, has added to the uncertainty surrounding the future course of the economy.

Slower-than-target inflation and a persistent decline in inflation expectations are key challenges for monetary policy. A negative equilibrium of prolonged low inflation and zero interest rates would fundamentally weaken monetary policy’s room for manoeuvre in balancing fluctuations in the economic cycle.

The economic outlook for the euro area has deteriorated rapidly. The impact of Brexit on Europe as a whole is hard to predict. Another factor overshadowing the global economy is the trade dispute between the USA and China.

The summary provides a simple introduction to the assessment of developments in the global economy and monetary policy presented in the March edition of the Bank of Finland Bulletin.